Buffer inventory is defined as which of the following?

Buffer inventory is defined as which of the following?

• A. Reorder level
• B. Buffer inventory
• C. Maximum inventory level
• D. Reorder level minus (Average usage multiplied by average lead time)

Answer: (D)

Buffer inventory, or safety stock, is the extra stock kept to guard against uncertainty in demand and lead time. It’s the cushion above what you expect to be used during the lead time. In practice, the buffer stock equals the reorder level minus the amount you expect to consume during lead time. The expected consumption during lead time is the average usage multiplied by the average lead time. So the buffer stock = reorder level – (average usage × average lead time). For example, if the reorder level is 1,000 units and you expect to use 800 units during the lead time (100 units/week for 8 weeks, say), the buffer stock would be 200 units. This is the extra inventory held to prevent a stockout if demand is higher than average or lead time is longer than expected. The other concepts don’t describe buffer stock: the reorder level is the trigger point, not the cushion; the maximum inventory level is the upper limit of stock, not the extra safety stock; and the difference between reorder level and expected lead-time usage precisely captures the extra protection against variability.

Buffer inventory, or safety stock, is the extra stock kept to guard against uncertainty in demand and lead time. It’s the cushion above what you expect to be used during the lead time.

In practice, the buffer stock equals the reorder level minus the amount you expect to consume during lead time. The expected consumption during lead time is the average usage multiplied by the average lead time. So the buffer stock = reorder level – (average usage × average lead time).

For example, if the reorder level is 1,000 units and you expect to use 800 units during the lead time (100 units/week for 8 weeks, say), the buffer stock would be 200 units. This is the extra inventory held to prevent a stockout if demand is higher than average or lead time is longer than expected.

The other concepts don’t describe buffer stock: the reorder level is the trigger point, not the cushion; the maximum inventory level is the upper limit of stock, not the extra safety stock; and the difference between reorder level and expected lead-time usage precisely captures the extra protection against variability.